There are many central banks that made actions against the use of decentralized currencies. However, despite the fact that cryptocurrencies such as Bitcoin are unregulated, it is undeniable how the technology and idea behind it are quite revolutionary.
This is the reason why it isn’t surprising why a good number of central banks worldwide are now considering the use of digital currencies. The Swedish Central Bank has issued a document last September discussing the possibility of using e-krona which is a digital Swedish currency. For the time being, it raises a good number of questions, while it can only produce few answers. However, there is certainty that it is not like Bitcoin.
Israel is also another country that is thinking of having its own digital currency. But unlike cryptocurrencies, it is going to be identical to the value of the existing currency that is issued by the central bank. It only means that it won’t be designed to change the current monetary system of the country.
Cash Substitute but Not a Cryptocurrency
This only works as a cash substitute. This means that instead of carrying a banknote, you would just be having a line of code using your smartphone. However, there is a difference between paying using your credit card and using this digital currency. The digital currency works just like cash on your hand that has no connection whatsoever to your bank account. The digital currency proposed by Israel is simply going to sit on your smartphone and could be used directly as payment without involving banks. The line of code will then be passed from one person to the next as transaction is made.
Security Issues and Curbing Illegal Transactions
Another important detail about the proposed digital shekels by Israel is that these are going to be registered with the Bank of Israel. This means that unlike cash, you can never make use of this digital currency anonymously, which is quite different from what cryptocurrencies offer.
Israel is planning to have this kind of move in order to put a dent in the use of cash in the black market. Based on research, Israel’s black market is equivalent to 22% of the country’s GDP. This is a problem since Israel is actually losing around 50 billion shekels in uncollected taxes annually due to under-the-table transactions. This is already equivalent to the country’s education budget.
In addition to this, it is also true that cash economy can provide easy access towards funding terrorist activities.
Given these problems, its finance ministry has considered including a provision in the 2019 Economic Arrangements Bill that would reduce the use of cash. For instance, if things go as planned, this could mean that payment of salaries in cash would most likely be banned.
It is clear how digital currency has affected the world today. However, cryptocurrencies are quite different since it can be used anonymously with zero regulations in countries today. With digital currencies such as that proposed by Israel and Sweden, not only are transactions monitored but this could also potentially improve tax collections and even curb black market activity.